Auto Enrolment

Enacted by the Pensions Act 2008, Auto Enrolment contains new employer requirements to help people save for their retirement. Under the legislation employers must automatically enrol all eligible jobholders working for them into a workplace pension scheme that meets certain requirements, and to provide a minimum employer contribution. From the staging date, the employer must:

Ensure that it provides a qualifying pension scheme available for all employees and other workers

Assess the entire workforce not currently in a qualifying pension scheme, and allocate each individual to one of three groups:

• Eligible jobholders

• Non-eligible jobholders

• Entitled workers

and communicate this assessment to them describing their rights and the employer’s responsibilities:

The employer must automatically enrol all eligible jobholders into a qualifying scheme

They must ensure that processes are put in place to enable opt-out of membership in the correct way and to establish processes that will re-enrol opted-out members back into the scheme on a 3-year cycle.

This means continually monitoring the workforce to ensure the auto enrolment legislation is followed.

Jobholders and Employer Duties (2015/2016 rates):

Eligible jobholders

Those workers who are not already in a qualifying pension scheme

Earn over the current rate of £10000 per year

Are aged 22 and over, and under the state pension age

Non-Eligible jobholders

Earn between £5824 and £10000 per annum

These are not included in the relevant pension scheme automatically, but can choose to opt-in to membership

Both the jobholder and the employer must then make contributions into the scheme

Entitled workers

Those earning lower than £5824 per annum are not included in the relevant pension scheme automatically, but are entitled to opt-in to membership

Employers are not compelled to make contributions

The legislation has minimum contribution rates which are being phased in over a number of years to help employers meet the costs: There is also enforcement by the Pensions Regulator in the form of fixed penalties, followed by uncapped escalating fines for non-compliance.

Employers may bring forward their staging date to be seen as forward thinking, to offer as a benefit package for employees or to align with certain periods in their payroll calendar (e.g. If staging date is at busiest time, bringing it forward can alleviate some pressure).

Employers can bring forward their staging date but once it has been moved forward it cannot be moved back

To bring the staging date forward employers must have an existing staging date and must have contacted a pension scheme that can be used to comply with employer duties.

If you bring your staging date forward, the new date must be the 1st of the month and you must take the following steps :

Obtain an agreement that the selected scheme can fulfil the duties from the new staging date

Agreement must be obtained from: the trustees or managers, for occupational pension schemes, or the provider, for personal pension scheme, or the scheme administrator as registered with HMRC

Notification must be in writing and TPR must be notified at least one calendar month before the new staging date

What is postponement?

Postponement allows the employer to postpone the automatic enrolment process for up to 3 months. This can be for:

All employees (can only be postponed at staging date)

Selected individuals (can be postponed at staging date or when they trigger automatic enrolment)

Groups of employees e.g. new starters (can be postponed at staging date or when they trigger automatic enrolment)

Why would employers choose to use postponement?

Bring the automatic enrolment process in line with their payroll process.

Provide a method of avoiding a spike in income for those who would usually not qualify for automatic enrolment.

Provide a method of leaving seasonal workers out from the process.

Some employers are using postponement to give themselves more time to prepare.

Postponement Rules

If an employer wants to use postponement they must issue the employee with a tailored postponement notice or a “General Notice”.

The employer needs to decide on the ‘deferral date’.

Challenges presented by Auto Enrolment

Although auto enrolment is a relatively simple policy that aims to get as many people as possible saving towards their retirement, it does create various challenges for the employer: Firstly, the additional costs involved, not only for the employer contributions;

Pension scheme management charges

Increased resource requirements – ie staff and training

Software costs where enhancements are required

Fees for independent financial advice, if required

Time – the time to get the systems in place may have additional HR/payroll administrative requirements; reviewing exiting practices and putting new processes in place will have additional burdens on the employer

Other challenges may include having the extra capacity required to adjust the timetabling of existing payroll processes to accommodate the opt-out rules in order to meet the compliance standards. Record-keeping processes will also be affected, along with ensuring that employees keep the employer updated with any personal changes to ensure the important communication requirements are maintained. Other considerations may include where group risk insurances are in place, particularly death in service benefits, as these are often contingent on pension membership – any substantial increase in pension membership may therefore have cost implications. There will be increased reporting, reconciliations and auditing burdens, as well as answering queries from employees and pension scheme provider when errors occur. In addition, there are some who argue that the minimum contribution rate of 8% is still too low, and many industry professionals anticipate the rates to rise to 12% over time.

This information is presented for guidance only – full and comprehensive information is available via the Pensions Regulator website here: